Inflation jump sends Sterling surging

The pound recorded impressive gains against the majors on Tuesday, rallying by over 0.7% against the euro, US dollar and Australian dollar in response to higher-than-forecast domestic inflation data.

GBP/EUR is currently trading in the region of €1.1125, GBP/USD has strengthened to $1.3326, GBP/AUD advanced to AU$1.6588, GBP/NZD achieved a high of NZ$1.8308 and GBP/CAD hit C$1.6206.

Can the pound hold recent highs? Keep scrolling to find out…

What’s been happening?

Yesterday’s UK inflation report for August was tipped to be the big-ticket news item, and it certainly provoked plenty of currency movement.

The pound surged across the board after the UK’s consumer price index rose by more than expected on both the month and year.

On an annual basis inflation matched May’s four-year high of 2.9%.

According to Lloyds; ‘The surge in August now leaves inflation over the quarter on track to exceed the Bank of England’s forecast of 2.7% in Q3, which was made at last month’s Inflation Report. We expect the push from a weaker sterling and the remainder of the hikes in domestic energy tariffs announced so far will continue to impart clear upward pressure to inflation. For some time our expectation has been that inflation would rise a little more sharply than that expected by the BoE, peaking at 3.1% in Q4. Today’s report lends support to that view.’

After the report was released the pound hit its best levels against the US dollar for a year and was able to climb beyond €1.11 against the euro.

Data from elsewhere was slightly less interesting, so the UK’s inflation report had the most dramatic results of the day in terms of exchange rate movement.

GBP/AUD managed to hold its higher ground despite a 2.5% improvement in Australia’s Westpac Consumer Confidence index.

What's coming up?

The pound could advance further later today if the UK’s latest employment data reveals an increase in average earnings.

Wage growth including bonuses is predicted to improve from 2.1% to 2.3% while wage growth excluding bonuses is expected to rise from 2.1% to 2.2%.

While such a result would be moderately pound-supportive, GBP movement may be a little stilted ahead of tomorrow’s interest rate announcement from the Bank of England (BoE).

Elsewhere, the Eurozone’s industrial production report may inspire some fluctuations in the common currency, while the US dollar will be bracing itself ahead of tomorrow’s US inflation stats.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.